Moving towards Industrial Cluster Development Initiatives

Medium and Small Enterprises have an important place in the creation of jobs for the vulnerable and marginalized segment of the society but they are also constrained by various challenges

Ethiopia’s Local Economic Development Programme (LED) is going ahead with industrial cluster development in order to enhance the competitiveness of Micro and Small Enterprises (MSEs) and lay the foundation for industrial development in various regions across the country.

The LED programme follows a two pronged strategy that target upstream policy engagement and grass roots intervention for the realization of the LED objectives. Within this premise, the programme has supported the development of the country’s first National Guideline for Industrial Cluster Development. The guideline was endorsed by the Federal Micro and Small Enterprise Agency (FeMSEDA), which plays a leading role in implementing LED in the country.

Region Cluster Highlights

Amhara : The textile cluster in Dessie was selected with the understanding that this cluster has strong backward and forward linkage that benefits farmers, processors, traders and consumers. The presence and support of Kombolcha textile in providing thread and dying materials was considered as a comparative advantage.

Oromia: The poultry cluster in Bishoftu was selected as it was believed that poultry cluster has strong backward and forward linkage and high chance of stimulating the economy of the locality and the country by and large. The vision of the city administration to make Bishoftu one of the leading poultry center like Holland was very inspirational.

SNNPR: The fruit cluster in Mizan Aman was selected as the area is endowed with high potential for banana, mango and avocado that are being produced by individual farmer at large and commercial farms. Its potential to enhance urban and rural linkage was highly emphasized. Its prospect to substitute import of packed juice of different kind was visualized.

Tigray: The metal work cluster in Adigrat was selected taking into consideration the size of enterprises in the cluster, potential of making linkage with a large engineering company in the city, its innovation level, and its provision to different sectors like agriculture by producing various farm implements, health and other service sectors.

LED Budget: The United Nations Development Programme (UNDP) has allocated USD 8 million to support LED initiatives in 27 cities/localities

Following the development of the guideline the programme moved from supporting individual isolated MSEs to the development of cluster. In view of the guideline, four model clusters are identified in four regions (Amhara, Oromia, SNNPR and Tigray) as a pilot programme to draw lessons and scale up interventions.

The development of the pilot clusters is expected to create jobs, strengthen MSEs and offer lessons for subsequent cluster development initiatives in Ethiopia.

Since its commencement, the LED programme has been supporting the establishment and strengthening of MSEs to assist the development efforts of the country to reduce poverty, transform the structure of the economy and bring about changes in human development.

Specifically, the development of MSEs has been pursued in recognition of their contribution to industrial development, employment generation, equitable distribution of wealth and opportunities. As a result, the programme supported more than 1,500 MSEs that created job opportunities for about 15,000 needy youths and women in 27 cities.

Although MSEs have an important place in the creation of jobs for the vulnerable and marginalized segment of the society, they are also constrained by various challenges. These constraints include lack of access to markets, finance, business information; lack of business premises; low level of skills and managerial expertise; low access to appropriate technology and poor access to quality business infrastructure.

The formation of industrial clusters of MSEs helps to alleviate the effects of the above mentioned constraints and make MSEs more competitive in markets.

The clusters also enable knowledge spillover, collaboration, specialization, and multi-faceted innovation that could be created through horizontal and vertical linkages and competition among enterprises.

The selection of the model cities and pilot cluster followed a participatory method and took into consideration the competitive advantages and the prospects to stimulate the local economy as presented.

Following the selection of the pilot clusters, the programme will develop concrete development strategies of the four clusters with the strategy implemented by various stakeholders.